A 6-day sojourn through oil and gas-rich Arab countries in the past week by China’s premier Wen Jiabao has drawn global attention to tensions over fresh Western sanctions against Iran and its consequences for energy security in Asia. The European Union and the United States are pushing major importers of Iranian oil such as India, China, Japan, South Korea, and Turkey to join an economic embargo for pressuring Tehran into halting its advancing nuclear programme.
Although China rebuffed Western entreaties to reduce oil imports from Iran, the choice of Saudi Arabia, United Arab Emirates and Qatar as the only destinations in Wen’s Middle East itinerary tells a tale of precautionary diplomacy. These three Arab states are pro-Western, Sunni Arab suppliers of oil and gas to Asia’s booming economies, and they are presenting themselves as substitutes to energy products that Iran has been providing. While China publicly plays down talk of forsaking Iranian oil and replacing it with Arab alternatives, Wen repeatedly raised the prospect of drastically increasing energy imports from the anti-Iranian Arab regimes he just visited.
Chinese communiques during Wen’s Middle East tour referred to “complicated regional trends” and to shaky energy horizons due to “geopolitical factors”, codes for the growing chorus in the West to compel Iran on its suspected nuclear weapons development. Counter-threats from Tehran to shut down the Straits of Hormuz, through which much of Asia’s oil imports flow, and the ever present danger that Israel might unilaterally attack Iran, have creased brows in Beijing for coinciding with China’s slowing economic growth.
Yet, China is confident that its size and economic leverage over the US are such that ignoring Washington on embargoing Iranian oil will not incur real damage. When one Chinese oil firm was recently placed on the financial sanctions list for trading with Iran, Beijing reacted furiously and conveyed “strong dissatisfaction and adamant opposition.” There is no automatic trigger for closing American financial markets to all foreign companies that trade in Iranian oil, and this discretionary element in the sanctions architecture gives China and other Asian powers scope to wiggle out of the proposed embargo.
Despite their strategic closeness to the US, countries like India, Japan, South Korea and Turkey are wary of costly economic fallouts from sanctions and war in the Persian Gulf. New Delhi has rightly decided not to heed the West on abandoning Iranian oil imports, and it is proceeding to negotiate alternative payment processing mechanisms to continue trading with Tehran. But since we are not in a position to prevent a violent conflagration involving Israel and Iran, it is being reported that India’s petroleum ministry has instructed public sector oil refiners to “reduce their dependence on crude imports from that country (Iran).”
As with other Asian importers of Iranian oil who are on tenterhooks because of the cold war between Iran and the West, India will have to diversify away from (though not totally renounce) a politically unstable supplier like Iran. With international sea freight rates declining steadily, India can think of entering into long-term contracts to raise oil imports from geographically more distant but predictable countries such as Venezuela, Brazil and Angola. Currently, we depend on the volatile Middle East for 70 percent of oil and gas imports, an unhealthy addiction laden with grave international political risks.
While seeking to gradually free ourselves from Iranian and other Arab energy producers, India and other Asian powers must also factor in the larger structural implications— for the Middle East as a region— of suddenly deserting Iran at a time when the US and the EU are aiming at Tehran’s jugular. If the Iranian regime falls to a mix of economic woes and US-Israeli sanctions or war, it could leave the Middle East bereft of any counterbalancing force to the West.
It is in the interests of Asian powers to avert a Middle East entirely under the Western thumb simply because India and its continental peers profess a desire for a multipolar world where there is no single global hegemon. It makes tactical sense to slowly retrench from Iranian oil, but it would be a strategic disaster for Asian powers to become reliant on Western approval to access Middle Eastern energy, which will remain important in our energy mixes for at least some more years.
Unlike China, which has a first mover advantage, India is realising the value of Africa and Latin America as stable sources of energy and trade rather late. The fracas over Iran’s oil embargo should be a wakeup call to redouble Indian diplomacy and foreign investment in these two hitherto neglected continents, while not passively turning our backs on the still pivotal Middle East.